MIdterm Examiation PRE 1 1

Saint John Colleges
PRE 1
MT Quiz 3
Name: JAN JOSEPH LEARY L. DORIA
1. Briefly discuss the phases of the audit process.

-FIRST, MAKE AN AUDIT APPROACH BASE ON THE RISK ASSESSMENT. SECOND, DO A TEST
CONTROL TO KNOW THE EFFECTIVENESS OF THE INTERNAL CONTROL AND A SUBSTANTIVE
TEST TO KNOW IF THERE IS MATERIAL MISSTATEMENT. THIRD, DO A SUBSTANTIVE
ANALYTICAL PROCEDURE AND TEST OF DETAILS OF BALANCE. LAST IS AFTER ANALYZING
THE DATA OR THE EVIDENCE MAKE N AUDIT OPINION OR AUDIT REPORT.
2. Expound on the key aspects to the planning and designing the audit approach.
-OBTAIN AN UNDERSTANDING OF THE ENVIRONMENT AND THE ENTITY IN IN ORDER TO
ANALYZE THE INFORMATION GATHERED DURING THE AUDIT AND TO CORRECTLY ASSESS
THE RISK OF FINANCIAL STATEMENT FRAUD, THE AUDITOR MUST HAVE A THOROUGH
UNDERSTANDING OF THE CLIENT'S OPERATIONS AND THE ENVIRONMENT THAT SURROUNDS
THEM, INCLUDING A WORKING KNOWLEDGE OF THEIR STRATEGIES AND PROCEDURES.
- UNDERSTANDING INTERNAL CONTROL AND ASSESSING CONTROL RISK CONTROLS OVER
COMPUTERS AND TRANSACTIONS BY THE CLIENT REDUCES THE RISK OF FINANCIAL
STATEMENT MISSTATEMENT. WE HAVE DISCUSSED HOW ONE OF THE MOST IMPORTANT AND
WIDELY ACCEPTED IDEAS IN THE THEORY AND PRACTICE OF AUDITING IS THE POWER OF
THE CLIENT'S INTERNAL CONTROLS TO PROVIDE TRUSTWORTHY FINANCIAL INFORMATION
AND PROTECT ASSETS AND RECORDS.
-ASSESS RISK OF MATERIAL MISSTATEMENT THE AUDITOR ANALYZES THE RISK OF
FINANCIAL STATEMENT MISSTATEMENTS BASED ON THEIR UNDERSTANDING OF THE
CLIENT'S INDUSTRY, BUSINESS STRATEGIES, AND CONTROL EFFECTIVENESS.
3. What is the significance of relevant assertions to an audit?

- RELEVANT CLAIMS HAVE A RELEVANT INFLUENCE ON WHETHER THE ACCOUNT IS
PROPERLY STATED AND ARE USED TO ASSESS THE RISK OF MATERIAL MISSTATEMENT AND
THE DESIGN AND PERFORMANCE OF AUDIT PROCESSES. FOR ACCOUNTS RECEIVABLE, FOR
ILLUSTRATION, VALUE IS PROBABLY A RELEVANT ASSUMPTION, BUT NOT FOR CASH. THE
AUDITOR CAN THEN CREATE AUDIT GOALS FOR EACH TYPE OF STATEMENTS AFTER
FINDING THE PERTINENT ASSERTIONS. THE AUDIT GOALS OF THE AUDITOR CLOSELY
CONNECT TO AND FOLLOW THE MANAGEMENT STATEMENTS.
4. Discuss briefly the IAS and AICPA Auditing Standards Assertions.

1. ASSERTIONS ABOUT CLASSES OF TRANSACTIONS AND EVENTS AND RELATED DISCLOSURES
OCCURRENCE- THE ENTITY IS INVOLVED IN THE TRANSACTIONS AND EVENTS THAT HAVE
BEEN DOCUMENTED OR RECOGNIZED.
COMPLETENESS- ALL EVENTS AND TRANSACTIONS THAT NEEDED TO BE REPORTED HAVE
BEEN REPORTED, AND THE FINANCIAL STATEMENTS NOW HAVE ALL THE RELATED
DISCLOSURES.
ACCURACY- THE AMOUNTS AND OTHER DETAILS OF THE EVENTS AND TRANSACTIONS THAT
HAVE BEEN RECORDED HAVE BEEN RECORDED IN THE RIGHT WAY.
CLASSIFICATION- ALL THE TRANSACTION AND EVENT ARE PUT ON THE RIGHT ACCOUNT.
CUT OFF- THE TRANSACTION IS RECORDED ON THE RIGHT ACCOUNTING PERIOD.
2. ASSERTIONS ABOUT ACCOUNT BALANCES AND RELATED DISCLOSURES

EXISTENCE- EQUITY INTERESTS, LIABILITIES, AND ASSETS ALL EXIST.
COMPLETENESS- ALL ASSETS, LIABILITIES, AND EQUITY INTERESTS THAT WERE TO BE
DOCUMENTED HAVE BEEN DONE SO, AND THE FINANCIAL STATEMENTS NOW CONTAIN ALL
NECESSARY ASSOCIATED DISCLOSURES.
ACCURACY, VALUATION, AND ALLOCATION — ASSETS, LIABILITIES, AND EQUITY INTERESTS
HAVE ALL BEEN INCLUDED IN THE FINANCIAL STATEMENTS AT THE APPROPRIATE LEVELS,
AND ANY RESULTING VALUATION ADJUSTMENTS HAVE BEEN PROPERLY RECORDED.
LIKEWISE, RELATED DISCLOSURES HAVE BEEN APPROPRIATELY MEASURED AND DESCRIBED.
CLASSIFICATION- THE APPROPRIATE ACCOUNTS HAVE BEEN USED TO RECORD THE ASSETS,
LIABILITIES, AND EQUITY INTERESTS.
RIGHTS AND OBLIGATIONS- LIABILITIES ARE THE ENTITY'S DUTY, WHILE ASSETS ARE
WITHIN THE ENTITY'S OWNERSHIP OR CONTROL.
PRESENTATION- IN ACCORDANCE WITH THE STANDARDS OF THE RELEVANT FINANCIAL
REPORTING FRAMEWORK, ASSETS, LIABILITIES, AND EQUITY INTERESTS ARE CORRECTLY
AGGREGATED OR DEAGGREGATED AND CLEARLY DEFINED. CORRESPONDING DISCLOSURES
ARE PERTINENT AND UNDERSTANDABLE.
5. Elaborate on the differences between balance-related and transaction-related audit objectives.

- BALANCE-RELATED AND TRANSACTION-RELATED AUDIT OBJECTIVES DIFFER IN TWO
WAYS. FIRST, CONTRARY TO WHAT THE TERMS INDICATE, BALANCE-RELATED AUDIT
OBJECTIVES ARE APPLIED TO INDIVIDUAL ACCOUNT BALANCES, SUCH AS THOSE FOR
ACCOUNTS RECEIVABLE AND INVENTORY, RATHER THAN TO CATEGORIES OF
TRANSACTIONS, LIKE SALES TRANSACTIONS AND PURCHASES OF INVENTORY. SECOND,
THERE ARE NINE AUDIT OBJECTIVES RELATED TO BALANCES AS OPPOSED TO SEVEN
AUDIT OBJECTIVES RELATED TO TRANSACTIONS. BALANCE-RELATED AUDIT GOALS ARE
ALMOST ALWAYS APPLIED TO THE ENDING BALANCE IN BALANCE SHEET ACCOUNTS DUE
TO THE WAY AUDITS ARE DONE.
6. Explain what are the General Balance-Related Audit Objectives.

-EXISTENCE- INCLUDED AMOUNTS ARE REAL. THIS GOAL EXAMINES WHETHER THE FIGURES
IN THE FINANCIAL ACCOUNTS OUGHT TO BE THERE IN THE FIRST PLACE.
COMPLETENESS—INCLUDES DISCLOSURE EXISTING AMOUNTS. WHETHER ALL AMOUNTS
THAT SHOULD HAVE BEEN INCLUDED HAVE ACTUALLY BEEN INCLUDED AS WELL AS
WHETHER ALL DISCLOSURES THAT SHOULD HAVE BEEN INCLUDED HAVE REALLY BEEN
INCLUDED ARE THE SUBJECTS OF THIS GOAL.
EXISTENCE COVERS THE RISK OF OVERSTATEMENT, WHILE COMPLETENESS COVERS
UNRECORDED AMOUNTS.
THE ACCURACY OBJECTIVE PERTAINS TO AMOUNTS BEING INCLUDED AT THE RIGHT
AMOUNTS AND DISCLOSURES BEING ACCURATE. ACCURACY—AMOUNTS INCLUDED ARE
STATED AT THE CORRECT AMOUNTS, AND DISCLOSURES ARE APPROPRIATELY MEASURED
AND DESCRIBED
CUTOFF—TRANSACTIONS ARE RECORDER IN THE PROPER PERIOD.
DETAIL TIE-IN: ACCOUNT BALANCE DETAILS AGREE WITH RELATED MASTER FILE AMOUNTS,
ADD TO THE ACCOUNT BALANCE TOTAL, AND AGREE WITH GENERAL LEDGER TOTAL
ASSETS WITH VALUE ARE INCLUDED AT THE AMOUNTS EXPECTED TO REALIZE. THIS
OBJECTIVE EXAMINES WHETHER AN ACCOUNT BALANCE HAS BEEN DECREASED TO REFLECT
DECREASES FROM HISTORICAL COST TO NET REALIZABLE VALUE OR WHETHER FAIR
MARKET VALUE ACCOUNTING TREATMENT IS REQUIRED UNDER ACCOUNTING RULES.
CLASSIFICATION—THE AMOUNTS LISTED BY THE CLIENT ARE APPROPRIATELY CLASSIFIED.
CLASSIFICATION ENTAILS FIGURING OUT WHICH ITEMS ON A CLIENT'S LIST BELONG IN
WHICH GENERAL LEDGER ACCOUNTS.
RIGHTS AND RESPONSIBILITIES. MOST ASSETS MUST BE OWNED IN ADDITION TO EXISTING
BEFORE THEY MAY BE INCLUDED IN THE FINANCIAL ACCOUNTS.
Coverage of next quiz will be Chapter 6 Audit Evidence

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Saint John Colleges

Name: JAN JOSEPH LEARY L. DORIA

1. Briefly discuss the phases of the audit process.

3. What is the significance of relevant assertions to an audit?

4. Discuss briefly the IAS and AICPA Auditing Standards Assertions.

2. ASSERTIONS ABOUT ACCOUNT BALANCES AND RELATED DISCLOSURES

5. Elaborate on the differences between balance-related and transaction-related audit objectives.

6. Explain what are the General Balance-Related Audit Objectives.

Coverage of next quiz will be Chapter 6 Audit Evidence

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